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You’re likely to get questions from your employees over the coming weeks about how the fiscal cliff could affect them and their paychecks. This won’t necessarily be an easy question to answer, but with the information below you can give your employees some direction and keep the peace in your office.
So where, exactly, does your company’s payroll tax come in? Well, in 2010 President Obama passed the Temporary Payroll Tax Cut which reduced every employees social security withholding by 2 percent. That meant that instead of recording a 6.2 percent withholding, employers needed only to record and withhold 4.2 percent from each employee’s check. This cut was set to expire in 2011 but was temporarily extended through 2012.
In 2013, your payroll department will need to go back to withholding 6.2 percent. It’s also possible that the reversion to higher income tax rates will also affect your payroll department as you’ll need to withhold the appropriate, increased amount.
The fiscal cliff will have a big affect on taxes, but generally a small affect on payroll departments. Most of the focus of the fiscal cliff changes are on investment and dividend income. There is likely to be a 3.8 percent tax added on to certain investment gains; in addition, capital gains and dividend taxes are set to rise.
Even more changes will occur when individuals file their income taxes. It’s been reported that as many as 26 million Americans will pay the alternative minimum tax (AMT) for the first time. In addition, the marriage penalty will return thereby reducing the standardized deduction available for married couples and taxing them on a higher basis than two non-married individuals filing single. Taxpayers should consult with an accounting professional to determine whether they need to pay the AMT and how best to file taxes in order to minimize marriage penalties.
While the fiscal cliff is the hot topic of today, the truth is that our tax landscape is ever changing and that can be difficult for a company to keep up with. Outsourcing the payroll operations of your business to a group of professionals who make payroll changes their full-time obsession, such as those at Pinpay.com, is a great way to avoid mistakes, reduce your expenses and keep your employees focused on what they do best.
Contact Pinnacle Payroll Solutions Today 800-925-7701